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2. investing
3. portfolio

Asset Allocation
- Asset Allocation provides 90%
of your return…. Sir Templeton
Contents
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Process or steps in your wealth planning.

What is asset allocation?
Why the need for asset allocation?
What are the different asset classes?
Why do you need to have asset allocation strategy ?
Who should be managing your portfolio of asset?
How to execute the asset allocation?
Diversification, Dollar Cost Averaging, Stay invested…
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My thoughts…
Fundamentally, Investment is about understanding what are your
investment goals and understanding the risks around it.
FNA and AA is a approach / tool that gives us a structure, educates us
asset correlation to achieve diversification.
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Asset Allocation
2
4-Step Approach To Your Wealth
1
Set Your Objectives
2
4
Ongoing
Review
Process
Integrated
Investment
Portfolio
Product / Manager
Selection & Evaluation
3
Develop Asset
Allocation
Strategy
The Journey of Financial Advisory
1
STEP 1:
OBJECTIVES
2
STEP 2:
ALLOCATION STRATEGY
IDENTIFY
RISK
PROFILE
18/4/2014
STEP 4:
PORTFOLIO REVIEW
PRODUCT
SELECTION
PORTFOLIO
REVIEW?
What should
wealth
distribution
be?
Identify
Life stage
and Time
Horizon
Identify
savings
gap
ASSET
ALLOCATION
Identifyobjectives
Income
Growth
Protection
• Seek Asset
Diversification
 Use ASIA’s
Strategic and
Tactical Model
Portfolio
Asset Allocation
4
STEP 3:
PRODUCT SELECTION
PORTFOLIO
ALLOCATION
GOALS
FINANCIAL
NEEDS
ANALYSIS
3
 How Frequent?
 What should you
look out for in your
Portfolio Statement
 What can cause
your portfolio to be
out-of-alignment?
 How do you
rebalance? What
are the rebalancing
rules?
4
The Journey of Financial Advisory
1
STEP 1:
OBJECTIVES
2
STEP 2:
ALLOCATION STRATEGY
IDENTIFY
RISK
PROFILE
18/4/2014
STEP 3:
PRODUCT SELECTION
PORTFOLIO
ALLOCATION
GOALS
FINANCIAL
NEEDS
ANALYSIS
3
What should
wealth
distribution
be?
Identify
Life stage
and Time
Horizon
Identify
savings
gap
ASSET
ALLOCATION
Identifyobjectives
Income
Growth
Protection
• Seek Asset
Diversification
 Use ASIA’s
Strategic and
Tactical Model
Portfolio
Asset Allocation
PRODUCT
SELECTION
4
STEP 4:
PORTFOLIO REVIEW
PORTFOLIO
REVIEW?
 How Frequent?
 What should you
look out for in your
Portfolio Statement
 What can cause
your portfolio to be
out-of-alignment?
 How do you
rebalance? What
are the rebalancing
rules?
5
1
Identify Your Goals. Know your life stage
Gain insight into your needs and areas of concern
Ages 18-29
Young/Early Career
 Savings & protection
 You want to protect
your earning power,
your single biggest
asset, against
disability, critical
illness or premature
death
Source: Citi and Kaplan Financial
Ages 30-45
Mature/Household
Formation & Career
 Wealth accumulation
and consolidation
 A married couple may
have different values,
risk tolerances and
financial planning
preferences
Ages 46-55
The Prime Years
 You are at the peak
of your career and
have amassed
considerable
wealth
 You may accelerate
your retirement
accumulation and
focus more on
health and
recreation
Ages 56-60
Nearing Retirement
 With mortgage and
parenthood behind
you, retirement
planning issues are
your focus
 You want to ensure
that your retirement
income will suit your
retirement lifestyle
Ages 61 and Over
Retirement
 Preserve the
purchasing power of
your assets
 It is time to take a
closer look at
estate/gifting plans
 Money management
is critical – since you
are no longer
working and do not
have a regular
income
1
Your Wealth, Lifestage, Balance Sheet
Wealth
Assets
Liabilities & Net Worth
Banking Products /
Cash
Loans
Retirement
Family Maturity
Estate & Tax Planning
Family Formation
Investments
Investment
Young
Insurance
Planning
Insurance
Consumption
& Saving
Net Worth
Real property
Debt
20
40
60
Age
Business interests
FV = PV(1+Return)Time
Your Goal
Present Amount You Have
The Journey of Financial Advisory
1
2
STEP 1:
OBJECTIVES
STEP 2:
ALLOCATION STRATEGY
IDENTIFY
RISK
PROFILE
18/4/2014
STEP 4:
PORTFOLIO REVIEW
PRODUCT
SELECTION
PORTFOLIO
REVIEW?
What should
wealth
distribution
be?
Identify
Life stage
and Time
Horizon
Identify
savings
gap
ASSET
ALLOCATION
Identifyobjectives
Income
Growth
Protection
• Seek Asset
Diversification
 Use ASIA’s
Strategic and
Tactical Model
Portfolio
Asset Allocation
4
STEP 3:
PRODUCT SELECTION
PORTFOLIO
ALLOCATION
GOALS
FINANCIAL
NEEDS
ANALYSIS
3
 How Frequent?
 What should you
look out for in your
Portfolio Statement
 What can cause
your portfolio to be
out-of-alignment?
 How do you
rebalance? What
are the rebalancing
rules?
8
2
Two Concepts of Allocation
Portfolio Allocation
ST
MT
Asset Allocation
10%
ST
30%
LT
MT
LT
60%
10%
30%
60%
Distributing wealth across 3 broad
categories
ASSET ALLOCATION
Where more than more
asset class is combined to
provide diversification and
achieve a better efficient
frontier
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Asset Allocation
9
2
The Investment Triangle
Protect & Preserve
Deposits
Premium Deposits
Stock Trading
FX Margin trading
Leveraged Trading Account
Market-Linked Account/Note
Equity-Linked Account/Note
Structured Notes Products
Bonds
Mutual Funds
Insurance / ILP
Property
Short Term Asset
Medium Term Asset
Long Term Investments
Whole Life
Variable Annuity
Universal Life
Wealth Structuring
2
How to Determine Portfolio Allocation
Assets
3
4
5
V Cautious
Cautious
Moderate
Aggressive
Very
Aggressive
5%
10%
20%
35%
30%
20%
60%
60%
60%
Short Term
ST
70%
MT
45%
Medium Term
LT
Long Term
6
2
30%
55%
Determinants
Life stage |Financials
Risk Tolerance
From the Qn in the FNA
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Asset Allocation
11
Pulse check: what stage of the investing
psychology cycle are you at?
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Asset Allocation
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Ongoing Portfolio Review
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Asset Allocation
13
2
Citi’s AA Views: Aug/Sep 2014
Why the need for asset allocation?

Risk vs return
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One of the best-known measures of risk is the variance, or standard
deviation of expected returns.
Beta = systematic risk. Eg 1.2 = 20% more volatile than the market
Required rate of return,
• E(Ri) = RFR + βi (RM – RFR)
Probability of correction?
 Diversification?

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Asset Allocation
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Asset Allocation
Risk & Return in a Portfolio
Risk Measurement
How is the risk level of an asset measured?
• Risk is conventionally measured by the variance or standard
deviation of return
• Standard deviation of return is the square root of the variance
• Returns are assumed to be normally distributed
• In this way, we can ascertain the probability of various return
outcomes at different confidence levels
Risk & Return in a Portfolio
Portfolio – a result of diversification within similar investment
• Volatility is composed of two sources: systematic risk (risk induced by the
market) and intrinsic or unsystematic risk (risk inherent to a security itself)
• By adding one or more securities, we can reduce the importance of the
unsystematic risk. However, the systematic risk can not be reduced through
diversification
Portfolio
Standard
Deviation
Unsystematic
risk
Systematic
risk
# of Stocks in Portfolio
Risk & Return in a Portfolio
Correlation coefficients of the core asset classes – 1999 -2010
USD
US
USD
High
Treasury Corporate Yield
Bonds Bonds
Bonds
Correlation coefficients from Jan USD
1999 to Jan 2010 Cash
Emerging
Emerging
Market US
European Pacific Market Global Global
Debt
Equities Equities Equities Equities Equities REITs
USD Cash
1,00
US Treasury Bonds
0,07
1,00
USD Corporate Bonds
0,04
0,70
1,00
USD High Yield Bonds
-0,07
-0,12
0,48
1,00
Emerging Market Debt
0,00
0,22
0,61
0,63
1,00
US Equities
-0,01
-0,24
0,16
0,59
0,53
1,00
European Equities
-0,02
-0,17
0,24
0,59
0,55
0,85
1,00
Pacific Equities
-0,06
-0,06
0,29
0,51
0,56
0,68
0,69
1,00
Emerging Market Equities
-0,04
-0,20
0,23
0,63
0,62
0,78
0,81
0,77
1,00
Global Equities
-0,02
-0,20
0,23
0,63
0,60
0,96
0,95
0,79
0,88
1,00
Global REITs
-0,03
-0,04
0,28
0,53
0,40
0,57
0,60
0,43
0,47
0,59
1,00
Asset Allocation
Asset Classes & Sub Asset Classes
Cash
Bonds
LCY Money Mkts
FCY Money Mkts
Investment Grade Bonds
LCY Bonds
Govt. Bonds
FCY Bonds
Equities
Corporate Bonds
High Yield Bonds
Emerging Markets Bonds
Local Equities
Global Equities
European Equities
US Equities
Satellite Equities
Alternatives
Hedge Funds
Real Estate
Small Cap Equities
Large Cap Equities
Pacific Equities
Growth Equities
Emerging Market Equities
Value Equities
Country Funds
Sector Funds
Theme Funds
Global REITs
Property Funds
Real Assets
Commodities
20
Portfolio Construction
Modern Portfolio Theory
 Modern portfolio theory (MPT) is a theory that has been developed by
Nobel Prize Harry Markowitz which aims at determining portfolios
maximizing return and minimizing risk by carefully choosing different assets
 MPT is a mathematical formulation of the concept of diversification in
investing, with the aim of selecting a collection of investment assets that
has collectively lower risk than any individual asset. This is possible, in
theory, because different types of assets are not perfectly correlated
21
Portfolio Construction
The Efficient Frontier
 The efficient frontier is the line which delimits all the efficient portfolios.
 The portfolios that maximize the returns and minimize risks

All portfolios below the frontier are inefficient
Return
AB
Efficient Frontier
C
D
A
Portfolios A and B have the save
volatility, but B reaches a higher
potential return
Portfolios C and D have the same
potential returns, but C has a lower
volatility
Volatility
22
Asset Allocation
Different Markets Different Volatility
Asset Allocation
Different Markets Different Volatility
Emerging Equities
US Equities
Asset Allocation
Different Markets Different Volatility
Staying invested
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Bring Risk Profile Form
 Model Portfolio
 House view and asset allocator
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